NATIONAL CONFERENCE OF INSURANCE LEGISLATORS



NATIONAL CONFERENCE OF INSURANCE LEGISLATORS

WORKERS’ COMPENSATION INSURANCE COMMITTEE

PHILADELPHIA, PENNSYLVANIA

JULY 10, 2009

MINUTES

The National Conference of Insurance Legislators (NCOIL) Workers’ Compensation Insurance Committee met at the Marriott Downtown in Philadelphia, Pennsylvania, on Friday, July 10, 2009, at 8:00 a.m.

Rep. Susan Westrom of Kentucky, chair of the Committee, presided.

Other members of the Committee present were:

Sen. Ralph Hudgens, GA Rep. Dan Dodd, OH

Sen. Travis Holdman, IN Sen. Jake Corman, PA

Rep. Marc Corriveau, MI Rep. Charles Curtiss, TN

Rep. Barb Byrum, MI Rep. Kathleen Keenan, VT

Rep. George Keiser, ND Sen. Ann Cummings, VT

Sen. Jerry Klein, ND Sen. Mike Hall, WV

Rep. Donald Flanders, NH Sen. Frank Deem, WV

Sen. Carroll Leavell, NM

Other legislators present were:

Rep. Richard Miranda, AZ

Rep. Perry Thurston, Jr., FL

Sen. Chris Steineger, KS

Sen. Ruth Teichman, KS

Rep. Dennis Horlander, KY

Rep. Brian Kennedy, RI

Also in attendance were:

Susan Nolan, NCOIL Executive Director

Candace Thorson, NCOIL Deputy Executive Director

Michael Humphreys, NCOIL Director of State-Federal Relations

Jordan Estey, NCOIL Director of Legislative Affairs & Education

MINUTES

The Committee voted unanimously to approve the minutes of its February 27, 2009, meeting in Washington, D.C.

STATE PEO ACTIVITY

Timothy Tucker of the National Association of Professional Employer Organizations (NAPEO) briefly overviewed 2009 state legislation to regulate workers’ compensation treatment of professional employer organizations (PEOs). Mr. Tucker said that states were advancing needed consumer protections and financial standards through legislation, including new laws in Nevada and New Hampshire.

Mr. Tucker commended the Committee for its 2007 development of the NCOIL Model Act Regarding Workers’ Compensation Insurance Coverage in Professional Employer Organization (PEO) Relationships, and said states—in conjunction with National Association of Insurance Commissioners (NAIC) guidelines—were using the model as a blueprint. In response to a question from Sen. Teichman, however, he said that only Hawaii had exclusively introduced the NCOIL model.

RESOLUTION ON FEDERAL WORKERS’ COMPENSATION COMMISSION

Rep. Westrom introduced a Resolution Opposing the Creation of a Federal Commission to Examine State Workers’ Compensation Laws, which she said, among other things, would reiterate NCOIL support of the state-based workers’ compensation system and oppose federal H.R. 635, The National Commission on State Workers’ Compensation Laws Act of 2009. Eric Goldberg with the American Insurance Association (AIA), David Eppstein of the National Association of Professional Insurance Agents (PIA), and Dierdre Manna with the Property Casualty Insurers’ Association of America (PCI) expressed support for the resolution.

Mr. Goldberg briefly overviewed H.R. 635 and said the measure, which was introduced by U.S. Rep. Joseph Baca (D-CA) in January, would establish a 14-member Commission to study state workers’ compensation laws and make recommendations. He said a similar 1972 Commission made 84 recommendations for state improvement, but avoided controversial conclusions on permanent disability payments for injured workers and system administration. As a consequence, he said, many states made these changes and increased benefits without providing for cost controls and fraud. He said states had since worked to reform their systems because of this and cautioned that a new federal commission could produce ill-advised results.

Ms. Manna said any Commission recommendations would likely call for a greater federal role and be inconsistent with the state workers’ compensation system structure. She noted, for example, that each state system was closely linked to its economy and that a one-size-fits-all approach to workers’ compensation insurance would harm, not help. She said several national organizations, including the NCCI and the Workers’ Compensation Research Institute (WCRI), already had researched the same information the Commission would and had worked with states to measure performance and advance reforms, when necessary. She also pointed out how costly and unnecessary a federal Commission would be during the economic downturn.

Following a motion made and seconded, the Committee voted unanimously to adopt the resolution.

EMPLOYEE MISCLASSIFICATION MODEL LAW

Rep. Curtiss and Sen. Hudgens introduced a proposed NCOIL Employee Misclassification Workers’ Compensation Coverage Model Act to address workers’ compensation problems of employee misclassification, insurance premium fraud, and increased costs. Rep. Curtiss said that most states exempted certain small employers from workers’ compensation coverage, causing many problems for states. He said that, among other things, misclassification left injured workers without coverage and shifted expensive medical costs to taxpayers and health insurance.

Sen. Hudgens said misclassification was a problem for small employers as well. He said competitors could unfairly win work contracts and benefit by misclassifying employees to avoid workers’ compensation costs, among others. He said it was important for NCOIL to “even the playing field” for all legitimate business owners.

Mr. Estey briefly overviewed the model, which he said was based primarily on Florida law, including a requirement, with certain exemptions, that construction employers purchase workers’ compensation insurance. He said the model presumed workers as employees unless they could satisfy a nine-point test, based on Wisconsin law, to become an independent contractor. He said the model’s other provisions included clear definitions, coverage requirements, insurer application, auditing, and disclosures, as well as increased regulator authority and civil and criminal penalties.

Eric Nordman, on behalf of the NAIC, reported that Director Merle Schreiber of South Dakota—Chair of the NAIC Workers’ Compensation (C) Task Force, had asked Task Force members to review the NCOIL model and submit comments during a June 14 meeting in Minneapolis, Minnesota. He said several individual regulators responded and had recommended several changes, including, among others:

• amending the PEO definition to reflect state laws

• amending the title to more accurately reflect the bill’s scope

• mandating coverage in other industries with high misclassification, such as transportation and extraction

• exploring the model’s impact on construction “wrap-up” projects

• eliminating Section 5, Application Requirements

Mona Carter with the NCCI said:

• employee misclassification was a major concern in every state and the model was an important first step

• construction jobs had high injury rates and were the most likely to be misclassified

• other industries besides construction could also benefit from strict coverage requirements

• clear definitions would add certainty to state appeals and adjudication processes

Matthew Capece with the United Brotherhood of Carpenters and Joiners of America (UBCJA) said payroll fraud was most frequent among construction-industry “subcontractors.” He said strong enforcement and penalties provisions were critical because employers increasingly pay workers off the books. He said he supported the model, but felt that it could be improved by, among other things:

• replacing the nine-point independent contractor test with the “ABC” approach used in most unemployment insurance codes

• requiring independent contractor names and other information on insurance applications

• requiring more frequent premium renewals, especially in the construction field

• redirecting penalty revenue to fund state enforcement

Lynn Knauf of PCI said further discussion was needed and asked the Committee to defer the model. She said that, for example, that the nine-point Wisconsin definition was successful because the same language and test was used for unemployment and tax purposes in the state.

J.R. Gonzales with the Coalition for Independent Contractor Freedom said nearly ten million legitimate independent contractors, small employers, and the economy could be adversely impacted by the model, and that:

• states should instead enforce existing laws better

• the independent contractor definition was broad and the nine-point test was restrictive

• employers could mistakenly misclassify workers and unfairly incur criminal penalties

• stop-work orders and $5,000 penalty assessments were too harsh

Howard Goldblatt with the Coalition Against Insurance Fraud discussed the unfair advantage created by employee misclassification. He said states were not doing enough to combat premium fraud, and discussed the impact uncovered injured workers had on the health insurance system. He said, among other things, that misclassification was “anti-consumer” because of the high cost of worker treatment that is transferred from the exclusive remedy workers’ compensation system to a fundamentally different health insurance structure.

Rep. Westrom noted that additional interested parties submitted written comments for review, including:

• Associated Builders and Contractors (ABC)

• Kentucky Department of Insurance

• Messenger Courier Association of America (MCAA)

• National Association of Professional Employer Organizations (NAPEO)

• Strategic Services on Unemployment and Workers’ Compensation (UWC)

• United Parcel Service (UPS)

Several legislators stressed the need for NCOIL action, but noted that further discussion was needed before a vote could be taken. After a motion made and seconded, the Committee deferred consideration of the model and appointed an interim Subcommittee on Employee Misclassification Model Legislation to work on model legislation before the November Annual Meeting in New Orleans. They also directed NCOIL staff to review interested party comments and produce a revised discussion draft for conference call review prior to the November Annual Meeting consideration.

ADJOURNMENT

There being no further business, the Committee adjourned at 9:12 a.m.

© National Conference of Insurance Legislators (NCOIL)

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